Should IFRS follow Kenny Rogers' advice? Know when to hold 'em, know when to fold 'em, know when to walk away...

October 8, 2009by Sukanya Mitra

Maybe not in the U.S., but worldwide, all eyes and ears are on the U.S. and its stand on what Sir David Tweedie, chairman of International Accounting Standards Board (IASB), fondly calls “iffers” or International Financial Reporting Standards (IFRS). And if you think about it, there are a lot of ifs involved. If U.S. will set an IFRS deadline soon. If the U.S. Securities and Exchange Commission (SEC) will follow its roadmap. If the new SEC Chief Accountant James Kroeker and Chairperson Mary Schapiro find IFRS as important as former Chairman Christopher Cox. If U.S will follow EU’s lead and shift from U.S. GAAP to IFRS.

Much is dependent on what the U.S. does and does not do said Cindy Fornelli, executive director at the Center for Audit Quality (CAQ), and panelist at a recent AICPA SEC Quarterly Update Webcast. She pointed out that Japan is one of those countries that is stepping closer to IFRS adoption and has introduced its own roadmap and deadline. However, she also noted that Japan has “made noises” that it will step back and re-consider its adoption of IFRS if the U.S. does not move towards adoption. “It [IFRS] could just be a house of cards that falls down and we’re the ones with the fan in the room,” she said.

What’s the Hold Up?

Going back a year or two from now, the “IFRS train was heading down the track on rather a light speed and there wasn’t anything slowing it, stopping it or turnin’ it around,” said fellow Webcast panelist, Elizabeth Gantnier, director of quality control at Stegman & Company. However today due to the global economic meltdown, U.S. questioning the IFRS standards and changing of key decision-makers at the SEC has led to “that [train being] derailed.” And while it’s time for the train to get back on track, the question of where and when is still up in the air. Gantnier said it’s time to “start that engine back again.”

Fornelli agreed that IFRS has indeed taken a backseat since Schapiro came on board, but with the financial and economic meltdowns as well as Bernie Madoff’s Ponzi scheme, she had other priorities.

IFRS is also a growing concern for the investor community as they’re unsure what its impact will be on them. Schapiro, who is very much focused on the investor community, wants to make sure that they are comfortable about IFRS and wants them involved. To that end, the CAQ has brought out the Guide to International Financial Reporting Standards (PDF) for the investor community that provides them and policymakers with an objective introduction to the current debate over a single set of high quality global accounting standards.

“At a recent AICPA conference, Kroeker said that IFRS will indeed be a priority for the office of the chief accountant,” said Fornelli, “so I think that’s a signal that both the OCA and he, personally, will be focused on [IFRS] as well as the Commission, as these things go.” Fornelli also reminded viewers that IFRS has been in the news lately and even President Obama has “called for significant progress towards [a] single set of [global] standards by the end of 2009.”

Much has clouded the IFRS tracks. As Fornelli pointed out it’s not just a matter of U.S. adopting the global standards. There are a lot of open questions and foundation building that needs to be done. At the moment, there are no certain dates in the SEC roadmap, companies are reluctant to spend money training personnel until something more definitive comes about, academia will need to start incorporating IFRS courses in the classrooms and teach it to students and as John Hudson, CPA and AICPA Webcast moderator pointed out, uniform CPA exams would also need to be updated and add IFRS.

Another question that was raised was on XBRL taxonomy being based on U.S. Generally Accepted Accounting Principles (GAAP) and whether it would need to be rebuilt based on IFRS and who would fund that project. “Yes, it will need to be revamped to take into consideration IFRS and if indeed that’s the way we go,” said Fornelli, “there are some questions of who will fund the upkeep of the XBRL system.”

There is some confusion about an existing IFRS taxonomy. “The IFRS taxonomy was published by the IASC Foundation (International Accounting Standards Committee) for companies who report using IFRS. However, at the present time the GAAP taxonomies are the only approved taxonomies for companies reporting under the SEC mandate,” clarified Ami Beers, manager Business Reporting, Assurance & Advisory Services and XBRL at the AICPA. “The SEC had stated in its proposal, roadmap for the potential use of financial statements prepared in accordance with international financial reporting standards by U.S. issuers was one of the milestones to be achieved for U.S. issuers to use IFRS would be the improvement in the ability to use Interactive Data for IFRS reporting. The current GAAP taxonomies contain over 13,000 elements as compared to the IFRS taxonomy, which only has approximately 2,000 elements.” Gantnier agreed with Beers pointing out that “part of the hurdle of getting the train back on track is having a good IFRS taxonomy.”

Conclusion

While a single set of high quality global accounting standards was one of the topics broached during last month’s G-20 summit, it was not the main focus of the event. Who knows what will happen next. As the IFRS seems to have gone through “comparability, compatibility, harmonization or convergence or whatever you want to call the four phases it has gone through — in time — the differences are being mitigated,” opined Hudson. More questions are bound to arise.